If you are planning to set up a construction company in the UK, you will need to complete a number of formalities, most importantly, choosing a form of business and registering. The decisions you make right from the start will have a huge impact on your entire business. This is why you need to think carefully about every step.
Construction companies in the UK – what formalities need to be fulfilled?
Setting up a company in the UK involves 5 basic steps:
- Choosing the business structure for a construction company in the UK,
- Registering the business,
- Registering the construction company as a VAT payer,
- Complying with CIS rules,
- Choosing a reliable accountant.
1.Choosing the business structure for a construction company in the UK
UK construction companies most commonly operate in the form of sole trader (self-employment) and Limited Company. Of course, there are other solutions, but these two options are the most common choice among entrepreneurs in the construction industry.
Running a business as self-employed involves fewer formalities, making it the simplest form of business. On the other hand, if you choose an LTD company, you can start a business in the UK without even being a UK resident.
What is the best choice? This already depends on the specific case. However, it is certainly worth thinking carefully about your choice of business form. It will determine all the formalities, taxes and obligations towards the authorities that you have to fulfil. A well-considered decision can therefore mean considerable financial benefits for you.
2. Registering the business
Once you have chosen your business form, it is time to register. At the outset, choose an appropriate name for your business, Remember that additional requirements may apply to you. For example, in the case of a LTD company, the name must end in ‘Limited’ or ‘Ltd.’
Running a business as a company also means that you need to appoint a director and secretary, establish the shareholder structure, create the company’s articles of association, and prepare the memorandum of association.
For self-employment, there will be far fewer formalities. In both cases, however, you must register your business with the appropriate authorities – Companies House and HMRC.
3. Registering the construction company as a VAT payer
You can register for VAT online or by filling out the VAT1 form. HMRC will assign you a VAT registration number linked to your VAT account.
To register, you will need to collect the relevant documents, including your National Insurance Number (NIN) and Unique Taxpayer Reference Number (UTR). You also need to decide how you will pay your VAT. You can choose from five options, including a VAT Annual Accrual Scheme, a VAT Cash Accounting Scheme or a VAT Flat Rate Scheme.
Currently, registering as a VAT payer in the construction sector involves the obligation to follow the reverse charge. This applies to all VAT rates and includes construction, renovation, and installation services. With the reverse charge, the subcontractor issues a VAT invoice with the note “This invoice is subject to a reverse charge for VAT” and does not add VAT, as this obligation rests with the recipient.
4. Complying with CIS rules
Once your construction company is registered, CIS (Construction Industry Scheme) will be crucial – it sets the rules for payments and settlements between contractors and subcontractors in the UK.
Amongst other things, the CIS requires construction companies in the UK to register with HMRC before employing their first subcontractor. Importantly, you are also required to verify each subcontractor with HMRC before making the first payment.
Your CIS responsibilities also include calculating, collecting and remitting to the office the advance, Income Tax and National Insurance (NIC) payments and paying the subcontractor the balance after deductions. You must also prepare and send CIS returns to HMRC taking account of payments and provide the subcontractor with certificates of deductions from their payments. If you fail to comply with these obligations, you face a fine.
5. Choosing a reliable accountant
As you can see, construction companies in the UK need to be very well versed in taxation and the applicable procedures. This means that if you want to handle everything yourself, you will have to spend a lot of time delving into the regulations and you will still not be sure that you are choosing the best possible solutions.
Remember that ignorance of the law is not an excuse for your oversights. That’s why it’s worth opting for professional tax advice. An accountant will not only help you choose the optimal business structure but will also ensure the accuracy of invoices, compliance with deadlines, and search for optimal tax solutions. Take advantage of our office’s services and gain the assurance that your company is being managed on the most favorable terms.
